What banks need to know and do now for the ECB's IReF

From fragmented beginnings to modern reporting standards in the Eurozone

Since the inception of the European Monetary Union in 1998, the regulatory reporting landscape has grown organically. Initially, statistical reporting was based on local reporting systems. Each member state, national competent authority (NCA), or national bank had its regulations for gathering data from the banking industry. 

As of 2024, the European reporting obligations remain fragmented, depending on various frameworks for financial data collection. Despite the centralized roles of the Single Resolution Board (SRB) and the European Banking Authority (EBA), statistical data is still predominately collected according to national standards. This decentralized approach involves collecting diverse types of data, including balance sheet items (BSI), interest rates (MIR), security holdings statistics (SHS-S), and granular credit and credit risk data (AnaCredit).

Introduction of the Integrated Reporting Framework (IReF)

Banks in the Euro area must submit extensive sets of data values and reports. On average, institutions report for the harmonized reporting frameworks around 60,000 values for year-end reference periods and 30,000 to 40,000 values for other quarters, while monthly reporting is limited to less than 10,000 values. Larger institutions may report over 400,000 values per period.

Statistical reporting requirements involve providing monthly data on balance sheets, payments, and settlement systems including over 8,000 data points. Despite partial harmonization, national authorities may have additional requests, expanding the scope of collected data per country.

Institutions have no choice but to report within the harmonized prudential framework, provide resolution data, and furnish statistical data. Further, national authorities’ additional data requests, lead to diverse reporting requirements, resulting in: 

• Different (national) data models and heterogeneous dictionaries. 
• Varied transmission frequencies, timelines, and levels of aggregation.
• Potential duplications and overlaps in reporting, with complex schedules and processes. 
• Differences in data quality rules (such as validation checks), revision policies, approaches to derogations, and data exchange formats.

To address these challenges, the ECB is developing a standardized and integrated statistical reporting framework - the IReF framework. The framework will allow banks to follow a single standard applicable in different countries where they operate. To achieve this goal, the ECB has defined three pillars for the IReF:

1. Joint Bank Reporting Committee (JBRC): Established by the EBA, ECB, and SRB, the JBRC will advise on integrating statistical, resolution, and prudential data reporting. It will facilitate data sharing among authorities and provide technical guidance to banks. 
2. Incorporation of Statistical Reporting: Initially, the IReF will focus on integrating statistical reporting requirements related to a bank's balance sheet assets and liabilities. The integration of payment or money market statistics is not currently a goal. However, proportional reporting requirements will be considered for small banks. 
3. Banks Integrated Reporting Dictionary (BIRD): Developed in collaboration with National Central Banks (NCBs), the European System of Central Banks (ESCB), and commercial banks, the BIRD will help banks deliver statistical, supervisory, and resolution data. It provides a data dictionary describing concepts and requirements based on European legislation, improving data quality, and reducing reporting burdens.

Essential IReF requirements explained

IReF will establish a standardized reporting framework across the Euro area. Initially, the focus will be on statistical reporting, specifically reports submitted by banks and financial institutions to the NCBs and the ECB. This includes reporting on balance sheet items, interest rates, securities holdings, and bank loans. Supervisory reports on prudential data and resolution reports are not included in this first phase. 

The ECB is also considering the integration of statistics on the balance of payments (BoP), international investment positions, financial accounts, and securities issued. Additionally, they are evaluating the possibility of aligning with other reporting obligations defined by international organizations, such as the International Monetary Fund (IMF) standardized report and Bank of International Settlements (BIS) locational banking statistics. The alignment with Financial Reporting (FINREP) on a solo level is also being assessed. 

Furthermore, the ECB is evaluating country-specific requirements to identify any overlap with the data collected under the IReF. NCBs have expressed a strong business need to continue collecting data at a national level, particularly for activities related to anti-money laundering, government support, and national credit registers. These national reporting obligations may fall within the scope of the IReF. 

By implementing an EU-wide integrated reporting framework for a sizable number of statistical reports, banks will need to adjust their data collection methods. The IReF will require a significant overhaul of how statistical reporting data will be reported. The IReF means stepping away from aggregated, template-based reporting and moving towards the delivery of more granular data, such as information on loans, derivatives, securities, and deposits.

Key milestones and timeline for IReF implementation

Looking ahead: What’s next?

The introduction of the IReF will bring standardized reporting requirements across the euro area, reducing the burden of complying with diverse local reporting requirements. It will also bring substantial benefits and cost reductions for reporting agents. Financial institutions operating in different EU member states will face a uniform set of requirements for each country, allowing for easier expansion of business. Additionally, ad-hoc data requests from NCBs should decrease, as the IReF will provide detailed datasets for analysis, resulting in fewer regulatory updates and a more efficient data collection process.

The IReF aims to ensure that both large and small institutions benefit from reduced reporting burdens. It will achieve this by ensuring proportional reporting standards apply to small institutions across the European Monetary Union, reducing the need for diverse reporting derogations granted on a national level.

To prepare for and benefit from this change, banks should begin by understanding the forthcoming changes and their rationale as early as possible. 

• Data management: They should assess the impact on their data collection processes and align their data sourcing with the IReF standards. This new reporting framework will allow them to proactively explore alternative reporting solutions and make the necessary adjustments to ensure a smooth transition.
• Automation and technology: The introduction of the IReF will drive banks towards greater automation and technology adoption in their reporting processes. Banks will need to invest in technology solutions that can handle the increased data volumes, ensure data quality, and streamline the reporting workflow.
• Parallel runs: It is important for banks to carefully plan and budget resources for testing and parallel runs to ensure a smooth transition to the IReF. By accurately estimating costs and allocating resources accordingly, banks can mitigate any potential financial impacts associated with the implementation of the new reporting framework.

As a global market leader in regulatory reporting, Wolters Kluwer can assist financial institutions during this change. With the OneSumX for Regulatory Reporting solution that offers a centralized input layer feeding data into prudential, resolution, and granular data reports, institutions can ensure they are aligned with the ‘define once, report once, regulate once, perform as one system’ IReF principles, making them fully compliant and ready for the upcoming framework. Additionally, it offers a solid foundation to easily extend to new requirements from the Joint Bank Reporting Committee and to leverage valuable content from the BIRD initiative.

By making the necessary adjustments and enhancing their data capabilities now, banks can ensure a smooth shift to the IReF, positioning themselves for enhanced efficiency and compliance in the new reporting landscape.